The India-US Double Taxation Avoidance Agreement (DTAA) stops the same income being taxed in full by both countries. If you are an Indian resident, the US withholds 25% on your dividends once you file Form W-8BEN, instead of the default 30%. It generally does not tax your capital gains on US-listed shares. India then taxes all of this as part of your global income and gives you credit for the US tax already paid.
This guide covers what the treaty says for each type of income, how the credit works in India under the Income-tax Act 2025, and what the treaty does not cover. For how tax treaties work in general, see how India's DTAAs work.
What are the India-US treaty rates?
Here is how each type of income is treated for an Indian resident investing in the US.
| Income | US tax for non-residents without the treaty | Under the India-US DTAA | How India taxes it |
|---|---|---|---|
| Dividends from US stocks and ETFs | 30% withheld | 25% withheld (15% only for a company owning at least 10% of the voting stock) | At your slab rate, with credit for the US tax |
| Interest | 30%, but bank deposit interest and portfolio interest are exempt under US law | Capped at 15% (10% on loans from banks) | At your slab rate, with credit for any US tax |
| Capital gains on US-listed shares | Generally not taxed if you were in the US for less than 183 days in the year | Each country follows its own law | 12.5% if held for more than 24 months, slab rate if held for 24 months or less |
| Salary and RSUs | Taxed only for work done in the US | The US can tax only pay for work done in the US | Taxed in full if you are resident, with credit for US tax on the US part |
Sources: the India-US treaty text (Articles 10, 11, 13 and 16), IRS Publication 515 for interest, and IRS Publication 519 for capital gains and salary.
What does the India-US tax treaty cover?
The treaty was signed in New Delhi on 12 September 1989 and has generally applied since 1991, according to the US Treasury's Technical Explanation. It covers individuals, companies and other entities that are tax residents of India or the US.
It works in two ways:
- Allocating taxing rights: it sets which country can tax each type of income, and caps the tax the source country can charge.
- Granting relief: where both countries tax the same income, the country you live in gives credit for the tax paid in the other.
On the US side, the treaty covers only federal income tax (Article 2). It does not cover US state income tax or US estate tax.
The full text is on the IRS's India tax treaty documents page. For a practical guide to buying US shares, read how to invest in US stocks from India.
Who counts as a resident under the treaty?
Treaty benefits apply only to residents of India or the US. If both countries treat you as a resident in the same year, for example because you moved midway through it, Article 4 of the treaty breaks the tie in this order:
- Permanent home: where you have a home available to you.
- Centre of vital interests: where your personal and economic ties are closer.
- Habitual abode: where you usually live.
- Nationality: the country you are a citizen of.
- Mutual agreement: if none of these settles it, the two tax authorities decide.
For most Indian investors with US income, India is the country of residence and the US is the source country.
How much does the US withhold on dividends?
The US withholds 30% on dividends paid to non-residents by default. Once you file Form W-8BEN with your broker to confirm you are an Indian resident, the rate drops to 25% under Article 10 of the treaty.
The 15% rate in the treaty applies only when the shareholder is a company that owns at least 10% of the voting stock, so it does not apply to individual investors. Dividends from US ETFs and mutual funds (regulated investment companies) are taxed at the 25% rate, never 15%.
Note: A W-8BEN stays valid until the last day of the third calendar year after the year you sign it. Paasa's guide to Form W-8BEN for RSU holders explains how to fill it in.
Example. Suppose you are an Indian resident in the 30% slab and your US stocks and ETFs pay $20,000 in dividends this year. You must report the gross $20,000 in India, not the amount that reached your account.
| Item | Without the treaty | With the treaty |
|---|---|---|
| Dividends received (gross) | $20,000 | $20,000 |
| US tax withheld | $6,000 (30%) | $5,000 (25%) |
| Indian tax at 30% | $6,000 | $6,000 |
| Credit for US tax | None | $5,000 |
| Tax still payable in India | $6,000 | $1,000 |
| Total tax paid | $12,000 | $6,000 |
The result: with the treaty, you pay $6,000 in total, the same as your Indian tax on that income
This example ignores surcharge and cess. For more on dividends, read how dividends from foreign stocks are taxed in India.
Does the US tax interest from bonds and cash?
The treaty caps US tax on interest at 15%, or 10% on loans from banks (Article 11). In practice, US law already exempts most interest that individual investors earn:
- Bank deposit interest: not subject to US withholding for non-residents, according to IRS Publication 515.
- Portfolio interest: interest on most US bonds issued in registered form after 18 July 1984, including US Treasuries, is exempt.
Payouts from US bond ETFs are dividends, not interest, so the 25% dividend rate usually applies. A fund can designate part of its payout as interest-related dividends, which are exempt.
India taxes all interest at your slab rate, with credit for any US tax withheld.
Does the US tax capital gains on US shares?
Generally no. Article 13 of the treaty lets each country tax capital gains under its own law. US law does not tax a non-resident's gains on US shares if they were in the US for less than 183 days in the year, according to IRS Publication 519.
India taxes the full gain:
- Long-term (held for more than 24 months): 12.5% without indexation, under section 197 of the Income-tax Act 2025.
- Short-term (held for 24 months or less): at your slab rate.
Paasa's guide to capital gains tax on foreign stocks covers how to work out the gain in rupees.
How are RSUs taxed under the treaty?
RSUs are employment income, so Article 16 of the treaty applies: your salary is taxed in your country of residence, and the other country can tax it only for work done there. US law treats pay as US income only for work done in the US, and splits it by time when you worked in both countries (IRS Publication 519).
So if you work in India for the Indian arm of a US company, your RSUs are taxed in India, through your employer's payroll, when they vest. The US does not tax them, unless you are a US citizen or green card holder, so there is no US tax to claim credit for.
Double taxation comes up when part of the vesting period was spent working in the US, for example on an assignment.
Example. Suppose you are an Indian resident and RSUs worth $100,000 vest this year. You spent half the vesting period on a US assignment, so $50,000 is US-source income, and $11,000 of US tax was withheld on it.
| Item | Amount |
|---|---|
| RSU value at vesting, taxed in India | $100,000 |
| Indian tax at 30% | $30,000 |
| US tax on the US-source $50,000 | $11,000 |
| Indian tax on that same $50,000 (the most you can claim as credit) | $15,000 |
| Credit allowed in India | $11,000 |
| Tax still payable in India | $19,000 |
| Total tax paid | $30,000 |
The result: you pay $30,000 in total, your Indian rate on the full RSU value, not $41,000
This example ignores surcharge and cess. The credit can never be more than the Indian tax on the same income. Paasa's guide to protecting RSUs from US estate tax covers what to do with the shares after they vest.
How do you claim credit in India for US tax?
India gives relief for tax paid under a treaty under section 159 of the Income-tax Act 2025, which replaced section 90 of the 1961 Act from 1 April 2026. To claim it:
- Report the income at its gross amount in your return, and list your US holdings in Schedule FA.
- File Form 44 for foreign income earned from 1 April 2026, or Form 67 for income earned up to 31 March 2026. Form 44 is due within 12 months of the end of the tax year, if your return is filed on time (CBDT's Form 44 FAQs).
- Attach proof of the US tax, such as your broker's tax statement. If the foreign tax paid in a year is ₹1 lakh or more, Form 44 must be verified by an accountant.
The credit is capped at the Indian tax on the same income. Paasa's guide to Form 44, which replaced Form 67, walks through each field.
What does the treaty not cover?
The treaty covers income tax only. It does not cover US estate tax, which can apply to non-residents who hold more than $60,000 of US-situs assets, such as shares of US companies and US-listed ETFs, when they die (IRS). The top rate is 40% (26 USC 2001).
UCITS ETFs domiciled in Ireland are not US-situs assets, so they are outside US estate tax. Read how US estate tax works for Indians and NRIs and UCITS vs US ETFs for Indian investors for more.
What mistakes should you avoid?
- Not filing Form W-8BEN: without it, the US withholds 30% on dividends instead of 25%.
- Reporting the net dividend: India taxes the gross amount, before US tax.
- Skipping Form 44 or Form 67: the credit is not applied automatically. Without the form, you can lose it.
- Leaving out Schedule FA: every foreign account, share and RSU holding must be disclosed in your return, even if it earned nothing. See Paasa's Schedule FA guide.
- Confusing estate tax with double taxation: US estate tax applies on death, is separate from income tax, and the treaty gives no relief from it.
Conclusion
The India-US DTAA keeps your US income from being taxed in full twice. The US withholds 25% on dividends and usually nothing on capital gains, and India gives you credit for the US tax against your own bill. The relief only works if you file Form W-8BEN with your broker and Form 44 (or Form 67) with your Indian return.
Other India DTAA guides
- India's DTAAs: the complete guide
- India-UK DTAA
- India-Singapore DTAA
- India-Switzerland DTAA
- India-Ireland DTAA
- India-Japan DTAA
- India-Germany DTAA
- India-Poland DTAA
- India-China DTAA
About Paasa
Paasa is a global investing platform built for Indian and Asian investors, giving anyone direct access to stocks and ETFs across the US, UK, Europe and Asia.
- Treaty rates applied: Paasa handles your Form W-8BEN, so US dividends are withheld at the 25% treaty rate.
- Credit-ready tax reports: India-ready reports show the US tax withheld, for Form 44 (or Form 67) and Schedule FA.
- Beyond US-situs assets: buy Ireland-domiciled UCITS ETFs alongside US stocks in the same account. For RSU holders, see how Paasa helps diversify RSUs.
